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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (19110)	12/20/2004 5:55:59 PM
From: RealMuLan	Respond to of 116555

Dollar doldrums Wall Street doesn't think the Fed will raise rates dramatically in '05. But what about the weak $? December 20, 2004: 12:43 PM EST By Paul R. La Monica, CNN/Money senior writer NEW YORK (CNN/MONEY) - Inflation is under control and that should mean that the Fed only will need to raise interest rates a couple more times in 2005 before pausing, right? Not so fast. Some market observers think the weak dollar could play a bigger role in the Fed's interest rate decisions next year. So far, inflation has not been a major problem. Data from November showed only modest rises in consumer goods and wholesale prices. With energy prices subsiding lately, that has eased inflationary fears as well. But the euro has gained about 5 percent against the dollar this year while the Japanese yen has risen about 3 percent. John Lynch, chief market analyst with Evergreen Investments, said the dollar should stabilize in 2005 but that there probably won't be any significant improvement in its value until 2006. If the dollar remains relatively weak, that could cause inflation to creep up since it would make the price of imported goods more expensive. "Part of the reason we see inflation rising next year is the dollar. Clearly, there is upward pressure on prices because of the falling dollar," said David Joy, capital markets strategist with American Express Financial Advisors. That's something the Fed would want to nip in the bud. "The depreciation of the dollar seemed to be having a muted effect on import prices to date. However, upside risks to the inflation outlook included possible further depreciation of the dollar," the Fed said in the minutes of its November policy meeting, released last week. In other words, the trend bears watching. money.cnn.com